Kiwi hits five-month high after Japan prints more money

BUSINESSDESK: The New Zealand dollar climbed to a five-month high against the yen after the Bank of Japan ramped up its money-printing programme in the face of slowing economic growth and continuing deflation.

The kiwi climbed as high as 65.65 yen, the highest since April 27, and traded at 65.61 yen at 5pm in Wellington from 65.09 yen yesterday. It was little changed at 82.82 US cents from 82.79 cents yesterday.

Japan's central bank expanded its asset purchase programme by 10 trillion yen to 55 trillion yen and kept its lending facility at 25 trillion yen as it kept the benchmark uncollateralised overnight call rate at between zero and 0.1%.

The bank expects "with the cumulative effects of earlier policy measures, today's decision will ensure the return of Japan's economy to a sustainable growth path with price stability", it says. The yen weakened to a month-low 79.14 per US dollar after the announcement and the yield on Japan's benchmark 10-year government bond fell 0.7 of a basis point to 0.813%.

"What else could they do? Their rates are already at zero," says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. "The kiwi could head a bit up towards 66 yen."

The Bank of Japan's action comes after the US Federal Reserve last week embarked on an unlimited programme to buy mortgage-backed securities in its third round of quantitative easing, and as the debate over what constitutes orthodox monetary policy begins in New Zealand, with JBWere strategist Bernard Doyle this week saying it is possible to put a ceiling on a currency, even if you cannot preserve a floor.

Government figures showed New Zealand's current account widened to $1.8 billion in the second quarter, more than the $1.6 billion forecast in a Reuters poll of economists. The annual deficit was $10.1 billion, or 4.9% of gross domestic product, from a revised $9 billion, or 4.5% of GDP, at the end of the first quarter.

New Zealand's second-quarter GDP figures are set for release tomorrow and are expected to show economic growth slowed to 0.3% in the period.

The kiwi edged up to 79.22 Australian cents from 79.08 cents yesterday after Standard & Poor's affirmed Australia's AAA rating and stable outlook due to its ability to absorb large economic and financial stocks.

The rating agency cited Australia's dependence on resources exports, external imbalances and high household debt as the country's weaknesses.

The kiwi advanced to 63.41 euro cents from 63.16 cents yesterday and increased to 51 pence from 50.89 pence. The trade-weighted index rose to 73.53 from 73.27.